If you were planning on sending workers out onto the insurance exchanges with a lump-sum of cash for premium costs, you’ll want to read the feds’ latest warning.
But the feds don’t want employers to think they can simply shift their workforces onto the exchanges.
So the IRS is reminding firms – via the most expense health reform penalty to date – that such a strategy isn’t a wise move.
Per-worker penalty up to $36K
In a new FAQ, the feds clarified that if firms set up a plan that contributes un-taxed money an employee can use to pay for insurance premiums, it violates the health reform law.
And the feds could slap firms with a $100 per day, per employee fine for setting up such a plan, which is also known as a stand-alone health reimbursement arrangement (HRA).
End result: a potential $36,5000 annual per employee fine.
This ruling means that employers can’t offer any tax-free money to pay for insurance premiums for non-employer-sponsored healthcare plans.
This type of arrangement is prohibited because the stand-alone plans with set limits (the maximum amount of money the company promises to contribute) violates the Affordable Care Act’s lifetime and annual limits on coverage ban.
‘Integrated’ HRAs, taxed funds OK
There are, however, a few things the IRS says employers can do. Firms can offer “integrated” HRAs, which are HRAs that are combined with a employer’s group health plan.
Many firms have set up high-deductible health plans for reimbursing co-pays and deductibles.
But the feds also made it very clear that an HRA will only be considered integrated with a health plan if the employee who uses it is enrolled in that health plan.
And employers can still provide their workers with a set amount of money to buy insurance on their own, which many firms feel is cheaper than sponsoring a group health plan.
They just can’t offer this option untaxed. Employers that choose to offer a lump sum must do it by increasing employees’ taxable wages.
Note: The Obama administration has said it would prefer if companies continue to offer coverage.
